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INCOME TAXES | 12 Months Ended
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Jun. 30, 2017
Income Tax Disclosure [Abstract] |
INCOME TAXES | NOTE 13: INCOME TAXES The components of income (loss) from continuing operations before income taxes are as follows (in thousands):
|  | Year Ended June 30, |
|  | 2017 |  | 2016 |  | 2015 |
U.S. |  | $ | (10,419) |  | $ | (131,615) |  | $ | 33,693 |
Foreign |  |  | 144,813 |  |  | 114,317 |  |  | 119,967 |
Total |  | $ | 134,394 |  | $ | (17,298) |  | $ | 153,660 |
The income tax provisions (benefit) related to the above results are as follows (in thousands):
|  | Year Ended June 30, |
|  | 2017 |  | 2016 |  | 2015 |
Income Tax Provision (Benefit): |  |  |  |  |  |  |  |  |  |
Current Tax Provision |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | (2,222) |  | $ | 20,226 |  | $ | 10,146 |
State and Local |  |  | 2,458 |  |  | 4,295 |  |  | 2,756 |
Foreign |  |  | 3,777 |  |  | 2,685 |  |  | 2,602 |
Total Current |  |  | 4,013 |  |  | 27,206 |  |  | 15,504 |
Deferred Tax Provision (Benefit): |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | 43 |  |  | (40,457) |  |  | (45) |
State and Local |  |  | 1,285 |  |  | (5,441) |  |  | (486) |
Foreign |  |  | 5,079 |  |  | 4,150 |  |  | 3,564 |
Total Deferred |  |  | 6,407 |  |  | (41,748) |  |  | 3,033 |
Income Tax Provision (Benefit) |  | $ | 10,420 |  | $ | (14,542) |  | $ | 18,537 |
The income tax provisions (benefit) differ from those that would be computed using the statutory U.S. federal rate as a result of the following items (in thousands):
|  | Year Ended June 30, |
|  | 2017 |  | 2016 |  | 2015 |
Income Tax at Statutory Rate |  | $ | 47,038 |  |  | 35.0 | % | $ | (6,054) |  |  | 35.0 | % | $ | 53,787 |  |  | 35.0 | %
Lower Rates on Foreign Operations |  |  | (42,911) |  |  | (31.9) | % |  | (33,213) |  |  | 192.0 | % |  | (36,428) |  |  | (23.7) | %
State Income Taxes |  |  | 1,063 |  |  | 0.8 | % |  | (1,012) |  |  | 5.9 | % |  | 2,320 |  |  | 1.5 | %
Nondeductible Tax Items |  |  | 3,686 |  |  | 2.8 | % |  | 2,080 |  |  | (12.0) | % |  | 953 |  |  | 0.6 | %
Nondeductible Goodwill |  |  | - |  |  | 0.0 | % |  | 23,957 |  |  | (138.5) | % |  | - |  |  | 0.0 | %
Other |  |  | 1,544 |  |  | 1.1 | % |  | (300) |  |  | 1.7 | % |  | (2,095) |  |  | (1.3) | %
Income Tax Provision (Benefit) |  | $ | 10,420 |  |  | 7.8 | % | $ | (14,542) |  |  | 84.1 | % | $ | 18,537 |  |  | 12.1 | %
Deferred income tax assets (liabilities) result primarily from temporary differences in the recognition of various expenses for tax and financial statement purposes, and from the recognition of the tax benefits of net operating loss carryforwards. These assets and liabilities are composed of the following (in thousands):
|  | Year Ended June 30, |
|  | 2017 |  | 2016 |  | 2015 |
Loss and Credit Carryforwards, Net |  | $ | 37,569 |  | $ | 24,213 |  | $ | 21,544 |
Employee Benefits |  |  | 19,758 |  |  | 17,820 |  |  | 17,852 |
Stock-Based Payments |  |  | 18,130 |  |  | 21,239 |  |  | 17,136 |
Deferred Rent |  |  | 17,588 |  |  | 22,135 |  |  | 24,102 |
Receivable Reserve |  |  | 13,140 |  |  | 20,158 |  |  | 20,043 |
Restructuring Reserve |  |  | 16,484 |  |  | 18,820 |  |  | 8,903 |
Other Reserves |  |  | 6,701 |  |  | 3,978 |  |  | 3,519 |
Less: Valuation Allowance |  |  | (9,456) |  |  | (8,624) |  |  | (10,552) |
Gross Deferred Tax Assets |  |  | 119,914 |  |  | 119,739 |  |  | 102,547 |
Depreciation |  |  | (11,730) |  |  | (24,217) |  |  | (25,860) |
Amortization of Intangible Assets |  |  | (109,124) |  |  | (72,850) |  |  | (91,321) |
Gross Deferred Tax Liability |  |  | (120,854) |  |  | (97,067) |  |  | (117,181) |
Net Deferred Taxes |  | $ | (940) |  | $ | 22,672 |  | $ | (14,634) |
As of June 30, 2017, Adtalem has $32.1 million of gross federal net operating loss carryforwards, $152.9 million of gross, post apportioned state net operating loss carryforwards, and $56.4 million of foreign net operating loss carryforwards in Brazil, St. Maarten and other jurisdictions. Adtalem has the following tax net operating loss (tax effected) and credit carryforwards as of June 30, 2017:
|  | June 30, |  | Years of Expiration |
|  | 2017 |  | Beginning |  | Ending |
U.S. Net Operating Loss Carryforwards |  | $ | 11,246 |  |  | 2037 |  |  | 2037 |
U.S. Credit Carryforwards |  |  | 271 |  |  | 2027 |  |  | 2027 |
State Net Operating Loss Carryforwards |  |  | 6,772 |  |  | 2018 |  |  | 2037 |
State Credit Carryforwards |  |  | 7,020 |  |  | 2018 |  |  | 2027 |
Foreign Net Operating Loss Carryforwards |  |  | 6,032 |  |  | 2021 |  |  | 2037 |
Foreign Net Operating Loss Carryforwards |  |  | 6,228 |  |  | No Expiration |
Gross Deferred Tax Assets |  | $ | 37,569 |  |  |  |  |  |  |
Adtalem’s effective income tax rate reflects benefits derived from significant operations outside the U.S. Earnings of these international operations are not subject to U.S. federal or state income taxes, so long as such earnings are not repatriated, as discussed below. Four of Adtalem’s operating units, AUC, which operates in St. Maarten, RUSM, which operates in Dominica, RUSVM, which operates in St. Kitts, and Adtalem Brazil, which operates in Brazil, all benefit from local tax incentives. AUC’s effective tax rate reflects benefits derived from investment incentives. RUSM and RUSVM each have agreements with their respective domestic governments that exempt them from local income taxation. Both of these agreements have been extended to provide, in the case of RUSM, an indefinite period of exemption and, in the case of RUSVM, exemption until 2037. Adtalem Brazil’s effective tax rate reflects benefits derived from its participation in PROUNI, a Brazilian program for providing scholarships to a portion of its undergraduate students. Valuation allowances are established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The valuation allowance on our deferred tax assets was approximately $9.5 million as of June 30, 2017 and $8.6 million as of June 30, 2016 for other foreign and state net operating loss and state tax credit carryforwards. Based on Adtalem’s expectations for future taxable income, management believes that it is more likely than not that operating income in respective jurisdictions will be sufficient to recognize fully all deferred tax assets, except as explained above. Adtalem has not recorded a U.S. federal or state tax provision for the undistributed earnings of its international subsidiaries. It is Adtalem’s intention to indefinitely reinvest accumulated cash balances, future cash flows and post-acquisition undistributed earnings and profits to improve the facilities and operations of its international schools and pursue future opportunities outside the U.S. In accordance with this plan, cash held by the international subsidiaries will not be available for general company purposes, and under current laws, will not be subject to U.S. taxation. As of June 30, 2017 and 2016, cumulative undistributed earnings attributable to international operations were approximately $1,038.5 million and $891.3 million, respectively. Although our current expectation is to not repatriate the aforementioned amount, the estimated income tax liability at current exchange rates and net of available foreign tax credits that would arise if these earnings were distributed to the U.S. is in the range of approximately $340 million to $360 million. This estimate is based on the assumptions that we would be required to distribute the entire amount of earnings as of June 30, 2017 and there are no local country tax restrictions on making such distributions. The effective tax rate was 7.8% for fiscal year 2017 compared to 84.1% for the prior year. The tax rate for fiscal year 2017 was impacted by the regulatory settlements in the second quarter of fiscal year 2017, discussed in “Note 4: Regulatory Settlements.” The effective tax rate excluding the settlements was 16.6% for fiscal year 2017 compared to 12.1% excluding impairment charges for fiscal year 2016. Significant domestic restructuring charges, which were deductible for tax purposes, occurred in both fiscal years 2017 and 2016 favorably impacted the effective tax rates. As of June 30, 2017 the total amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, was $7.9 million. The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $6.7 million as of June 30, 2017. As of June 30, 2016, the total amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of benefits, was $7.5 million. The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $5.7 million as of June 30, 2016. We expect that our unrecognized tax benefits will decrease during the next 12 months due to the settlement of various audits and the lapsing of statutes of limitation. We estimate this decrease to be approximately $3.9 million. Adtalem classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. The total amount of interest and penalties accrued as of June 30, 2017, 2016, and 2015 was $2.0 million, $1.6 million and $1.5 million, respectively. Interest and penalties recognized during the years ended June 30, 2017, 2016, and 2015 were $0.4 million, $0.2 million and $0.1 million, respectively. The changes in our unrecognized tax benefits were (in thousands):
|  | Year Ended June 30, |
|  | 2017 |  | 2016 |  | 2015 |
Beginning Balance, July 1 |  | $ | 7,497 |  | $ | 8,475 |  | $ | 9,135 |
Increases from Positions Taken During Prior Periods |  |  | 1,397 |  |  | 346 |  |  | 3,089 |
Decreases from Positions Taken During Prior Periods |  |  | (1,445) |  |  | (1,716) |  |  | (4,352) |
Increases from Positions Taken During the Current Period |  |  | 452 |  |  | 392 |  |  | 603 |
Ending Balance, June 30 |  | $ | 7,901 |  | $ | 7,497 |  | $ | 8,475 |
Adtalem files tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. Adtalem remains generally subject to examination in the U.S. for years beginning on or after July 1, 2013; in various states for years beginning on or after July 1, 2012; and in our significant foreign jurisdictions for years beginning on or after July 1, 2012. Adtalem is currently under audit by the States of Illinois, Indiana, New Jersey, New York and South Carolina and the City of New York for various tax years between 2010 and 2015. The U.S. federal tax returns for the years ending June 30, 2014, 2015 and 2016 are currently under audit by the Internal Revenue Service (“IRS”), which began in the first quarter of fiscal year 2017. Although we have recorded tax reserves for potential adjustments to tax liabilities for prior years, we cannot provide assurance that a material adjustment, either positive or negative, will not result when the audits are concluded.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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